Here’s the Penalty for Not Having Health Insurance

The Affordable Care Act, or ACA, requires that most Americans buy health insurance — but not everyone signed up, and not everyone who did sign up kept their coverage. Millions could owe a tax penalty for not having health insurance, a fee that’s sometimes called the Obamacare penalty.

The ACA’s individual mandate requires everyone in the U.S. to have health insurance, unless you qualify for an exemption. If you didn’t qualify, and went without “essential health benefits” for more than three months in 2016, you’ll have to pay a penalty on your coming tax return.

Who pays a penalty for no health insurance

If you go more than three full, consecutive months without health insurance, you might have to pay a tax penalty for that year. If you have health insurance for only one day of a month, it counts as a month with health insurance.

Here’s an example: Say you go without health insurance for all of January and February. Then you buy health insurance and it goes into effect on the last day of March. You would not be subject to a tax penalty for no health insurance because you didn’t go without a health plan for three full, consecutive months.

The penalty’s cost is calculated in one of two ways: You’ll either pay a percentage of your total household adjusted gross income — which you’ll figure on your annual tax return — or a flat rate, whichever is greater. Your tax return will also help you determine your penalty amount.Each year, the penalty will increase to keep pace with inflation and encourage people to buy coverage.For tax year 2016, the penalty will rise to 2.5% of your total household adjusted gross income, or $695 per adult and $347.50 per child, to a maximum of $2,085.For tax year 2017 and beyond, the percentage option will remain at 2.5%, but the flat fee will be adjusted for inflation.

Cost of health insurance penalty

The penalty is calculated in one of two ways: either as a percentage of your total household adjusted gross income or a flat rate, whichever is greater.

For tax year 2017, the penalty is 2.5% of your total household adjusted gross income, or $695 per adult and $347.50 per child, up to a maximum of $2,085.

For tax year 2018 and beyond, the penalty amounts have not been announced, but are expected to increase.

A tax preparer, if you have one, or tax software can calculate any penalty for not having health insurance. Note that for the 2017 tax year, the IRS won’t automatically reject tax returns that don’t disclose whether you have health insurance. But taxpayers who don’t answer the health insurance question may be contacted for follow-up, according to the IRS.

The simplest way to avoid the penalty is by having insurance. The ACA set up the health insurance marketplace at Healthcare.gov to make this possible. There, you can search for plans and prices, or be directed to your state-specific marketplace that provides the service for your area.Open enrollment under the ACA — during which you can sign up for coverage for the next year — only lasts for a few months. Outside of open enrollment, you may be able to sign up if you have a qualifying life event, such as a recent marriage, divorce or birth.You don’t have to get your insurance through the marketplace, though. You can also buy coverage through your employer, a private insurer or through Medicaid, if you qualify.Some have chosen to opt out of Obamacare, deciding that the penalty is less of a burden than buying insurance; most of them will be fined. But others may be exempt and can stay uninsured or have periods of non-coverage without facing the penalty.

Exemptions from health insurance penalty

If you qualify for an exemption under the ACA, you won’t be charged a penalty for not having health insurance. You won’t have to pay a fee if:

The most affordable coverage costs more than 8.13% of your household income

You were uninsured for less than three consecutive months of the year

You are exempt from filing a tax return because your income is too low

You are Native American or eligible for health services through an Indian Health Services provider

Your religion objects to the use of insurance

You’re in prison

You belong to a health care sharing ministry

You have been abroad for more than one year

You qualify for a hardship exemption due to an issue such as homelessness, bankruptcy, eviction or similarly trying circumstances, listed here.

If you believe you qualify for an exemption, you can claim it when you file your tax return, or apply for an exemption on the Healthcare.gov website.

If you qualify for an exemption under the ACA, you won’t be charged the penalty, even if you don’t have coverage. You could be exempt if:

The most affordable coverage costs more than 8% of your household income.

You were uninsured for less than three months of the year.

You are exempt from filing a tax return because your income is too low.

You are Native American or eligible for health services through an Indian Health Services provider.

Your religion objects to the use of insurance.

You’re in prison.

You belong to a health-care sharing ministry.

You have been abroad for more than one year.

You qualify for a hardship exemption due to an issue such as homelessness, bankruptcy, eviction and similarly trying circumstances listed here.

If you believe you qualify for an exemption, you can claim it when you file your tax return, or apply on the Healthcare.gov website.

It pays to know whether you’ll be among the millions expected to face the individual mandate penalty when filing tax returns next year. (If you file taxes online, the preparer you choose will calculate any penalty.) That will help you budget now for penalty costs. And with the next open enrollment period always around the corner, it may be time to reconsider your coverage and potential penalty for the year ahead.

Buying health insurance and avoiding a penalty

If you can’t get health insurance through a workplace, the health insurance marketplace at Healthcare.gov is a good place to start. You can search for plans and prices there, or be directed to your state’s marketplace.

Open enrollment for ACA health plans — during which you can sign up for coverage for the next year — only lasts for 45 days: Nov. 1 to Dec. 15, 2017. Outside of open enrollment, you may be able to sign up if you have a qualifying life event, such as a recent marriage, divorce or birth.

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